For those with little or no memory, there was a time not so long ago when every mention of photography was preceded or followed by these three letters: NFT. Since generative AI burst onto the scene, mentions, as well as the value of these three letters, have plummeted. The frenzy has turned into a defining silence ever since. So, where are NFTs today?
For a reminder, for those who still don’t know, an NFT is a non-fungible digital certificate inscribed in the blockchain. It contains data that can be associated with a photograph, either via a hash (a unique string of letters and numbers associated with a specific image) or via a URL pointing to an image’s location. NFTs are exchanged, bought, and sold by collectors worldwide who purchase them as a certificate of ownership, just as they would buy a print. NFTs carried a seductive promise.
In early 2021, NFTs exploded onto the global scene with the sale of “Everyday: The First 5000 Days” for over $69 million at a Christie’s auction. Shortly thereafter, the frenzy began, fueled by millions of people still stuck at home due to the COVID-19 pandemic, bored, glued to their screens, and full of unspent vacation money. While the first NFTs were more about illustrations, photography, by its digital nature, quickly became a sought-after asset. In October of the same year, the first NFT associated with a photograph was auctioned at Christie’s for over a million dollars. And another NFT from the same set sold for over $2 million a month later. Today, it is on sale for about $13,000—a 99.35% drop in value. According to a recent report, 95% of NFT owners have lost money.
What drove the initial frenzy:
A rapidly growing demand: First, associating NFTs with blockchain was both a blessing and a curse. A blessing because everyone seemed to want a way to invest in the fast-growing cryptocurrency. But buying money isn’t sexy or appealing, especially if it’s digital and you can’t see or touch it. Art, on the other hand, is. This significantly opened up the market as people were now offered something more tangible and sometimes even visually pleasing.
Lots of money and lots of screen time: It obviously helped that this happened as the global COVID lockdown was still active, when people were stuck at home, glued to their screens, and had money to spend since they were no longer using it on analog activities like restaurants, cinemas, and vacations.
Endless Revenue Potential: One of the primary attractions for creators was the feature inherent in NFTs that enabled artists to earn a commission with each subsequent sale of the NFT, a provision not found in traditional paper printing (termed as Creator Fees). This automated mechanism for “secondary sales” commissions promised to allocate a fraction of the sales to the artist every time the NFT exchanged hands, indefinitely, allowing the artist to share in the prosperity of their work in the collector’s market. With transactions reaching into the millions, and commissions set at 10%, this feature was undeniably a strong incentive.
What caused the downfall?
Cryptocurrencies crashed: First, cryptocurrencies collapsed for a variety of reasons. Thus, NFT prices, in converted dollars, began to fall due to the declining exchange rate. Exit the speculators.
Value of Ethereum since its creation, the principal cryptocurrency used in NFT trading. Find more statistics at Statista.
Saturation and quality: Like any new trend, the NFT space quickly became saturated. Everyone wanted a piece of the pie, leading to a flood of NFTs on the market. Not all were of high quality or had real artistic value. This saturation diluted the market’s value and made it harder for buyers to discern which NFTs were worth investing in.
Environmental concerns: There were also growing concerns about the environmental impact of blockchain technology, particularly the energy-intensive processes involved in minting NFTs and maintaining the networks on which they operate. This led to criticism and backlash, especially from environmentally conscious communities.
Regulation and legal issues: As the NFT market grew, concerns about copyright violations, theft, and other legal issues also increased. The lack of a clear regulatory framework made it a sort of Wild West, further eroding trust in the system.
Speculative nature: Much of the initial interest in NFTs was purely speculative. Many buyers hoped to quickly resell their purchases for a profit rather than truly valuing the art or content. Once the bubble burst, these speculative buyers were among the first to exit. Apparently, they were the large majority.
COVID-19 is (almost) gone: Although most still work from home, people are no longer as glued to their screens. And more importantly, they’re spending their money in restaurants, cinemas, and travel again.
Broken promise: Marketplaces decided to disable creator’s fees, the feature that allowed artists to be paid for secondary sales, making NFTs less unique and far less appealing to creators.
All these factors combined have contributed to the current state of NFTs. Like anything built on hype, greed, deception, craze, unfulfilled promises, and misunderstood technology, it was doomed to fail.
Is it over?
Not really. Some types of NFTs are still progressing. These are tied to an experience, like a membership. They allow the owner to access either exclusive products or services or to be part of an exclusive club with events and parties. Brands, for instance, continue to issue NFTs as they also serve as a digital membership card, in electronic format. Marketplaces, where people sell and buy NFTs, are also still active, and for those who think the market will pick up again, there are some great deals to be had.
However, most experts believe that the NFT bubble has irreversibly deflated. It’s unfortunate, as the ownership of digital files naturally finds its place in our digital universe, where we now spend much of our time. Experts anticipate that NFTs were just an imperfect first attempt. They predict that the coming years will see a more refined and less tumultuous version emerge, allowing collectors to hold digital visual artworks just as they own prints of photographers they cherish today.
This article was originally posted in French here: https://www.a-l-oeil.info/blog/2023/10/13/de-la-frenesie-a-la-chute-ou-en-sont-les-nft-aujourdhui/
Main image: Photo by Anthony Intraversato on Unsplash
Author: Paul Melcher
Paul Melcher is a highly influential and visionary leader in visual tech, with 20+ years of experience in licensing, tech innovation, and entrepreneurship. He is the Managing Director of MelcherSystem and has held executive roles at Corbis, Stipple, and more. Melcher received a Digital Media Licensing Association Award and is a board member of Plus Coalition, Clippn, and Anthology, and has been named among the “100 most influential individuals in American photography”